Mid-Morning Look

Friday, January 27, 2023

U.S. stocks in cruise control, adding to incredible January gains (Nasdaq +10% MTD, SPX +5.9%, Russell +8%), extending higher after the S&P broke out of its long term down trendline this week, pushing on lower rate hike fears and decelerating inflation into the FOMC meeting next week. Earnings season has not been showing the historically strong beat % as in past, but beats have been rewarded as the average stock performance into today on rev beat is +1.1% vs just -15bps on a miss (few examples of this: MSFT, NOW, DOW, LRCX, TER, to name a few). The Dow Jones Industrial Average gets a boost from financials, as investors reward AXP and Visa (V) after earnings results. Tech heavy Nasdaq rebounds into positive territory, on track for 4^th week in a row of gains and up roughly 10% this month, despite weakness in semis on awful INTC guidance stock reaction. Data today not worrying investors as inflation data exactly in-line with economist views as the December PCE Price Index M/M for Dec rose +0.1% (in-line with ests) and rose 5.0% Y/Y (also in-line w ests and down from the +5.5% prior month). The Core PCE Price Index M/M for Dec rose +0.3% (in-line with ests and up from prior month +0.2%) and Y/Y rose +4.4% (in-line with ests and down vs. prior month +4.7%). Michigan data and Pending Home Sales also came in above consensus views. The 2023 sector winners so far extend gains on Friday: as Discretionary +1.2% (now up 13% YTD), Communications +0.65% (YTD up +15%), Industrials and REITs +0.3% (both up 8% YTD) while among sector lowers today are 2023 losers: Healthcare (-1.6% YTD), Utes (-2.3%) and Consumer Staples (-2% YTD). FOMC policy meeting along with nonfarm payroll report, ECB policy meeting and earnings from Apple, Amazon and Alphabet all major mkt catalysts. Dollar higher, Treasury yields higher, oil higher and the Vix lower on what has been strong Friday trading reactions in January: SPY Fridays thus far in 2023, on 1/6 +2.3%, 1/13 +0.4% but opened down almost 1%, 1/20 +1.85%.

Economic Data

·     December PCE inflation data in-line: December PCE Price Index M/M for Dec rose +0.1% (in-line with ests) and rose 5.0% Y/Y (also in-line w ests and down from the +5.5% prior month – peak was 7% in June ‘22). The Core PCE Price Index M/M for Dec rose +0.3% (in-line with ests and up from prior month +0.2%) and Y/Y rose +4.4% (in-line with ests and down vs. prior month +4.7%).

·     Personal Spending for December fell (-0.3%) M/M from flat the prior month while Personal Income December rose +0.2%, in-line with consensus and down from prior month of +0.4%.

·     University of Michigan Confidence Jan-Final sentiment at 64.9 from a preliminary reading of 64.6; index at 59.7 in prior month as the expectations index rose to 62.7 vs. 59.9 prior and current economic conditions index rose to 68.4 vs. 59.4 prior month.

·     The UoM inflation expectations index for 1-yr in median prices during the next year fell to 3.9% vs. 4.4% last month, lowest since April 2021 and the expected change in median prices during the next 5-10 years unchanged at 2.9%.

·     US December pending home sales rise 2.5% m/m vs. est. down (-1.0%)

Stock GAINERS

·     AXP +9%; missed Q4 results ($2.07/$14.18B vs. $2.22/$14.22B) but forecast full-year profit above consensus as sees net revenue growth +15%-17% and EPS of $11.00-$11.40 vs. est. $10.55.

·     CHWY +6%; upgraded to Outperform at Wedbush saying they expect acceleration in net adds and continued material improvement in EBITDA margins.

·     KNX +5%; helping lead trucking stocks higher (JBHT, ODFL, JBHT) despite reporting a sharp drop in 4Q profits amid a weakened freight market (EPS $1.00 vs. est. 41.12) as revs fell ex fuel -9.5% y/y and net income slumps 42% to $148.7M

·     LHX +7%; rises on beat and raise; 4Q adj EPS $3.27 vs est. $3.26 on revs $4.6B vs est. $4.34B; sees FY23 revs $17.4-17.8B vs est. $17.56B, adj EPS $12.00-12.50 vs est. $12.49, adj FCF $2.0B+

·     NOG +5%; will replace SJI in the S&P SmallCap 600 effective prior to the opening of trading on Thursday, February 2.

·     TSLA +4%; adds to yesterday gains post earnings and up over 65% in 3-weeks.

·     V +2%; said a rise in cross-border travel helped Q1 results beat as EPS $2.18 vs. est. $2.00; Q1 revs rise 12% y/y to $7.9B vs. est. $7.69B; total cross-border volume growth, on a constant dollar basis increased 22% in Q1; qtrly payments volume increased 7% y/y.

Stock LAGGARDS

·     CL -5%; reports in-line Q4 EPS of $0.77 as sales rose 5% y/y to $4.63B topping views and organic sales +8.5% tops estimate +7.7% but missed in N.A (+4.5% vs. +5.6%), while sees low-to-mid single digit EPS growth in FY23.

·     CVX -3%; quarterly profit for 2022 more than doubles to record $36.5 bln, but still falls shy of estimates, undercut by asset write-downs and retreat in oil and gas prices; Q4 profit hit by higher expenses and weaker oil and fuel profits.

·     EMN -4%; the latest chemical co to miss earning as Q4 adj EPS $0.89 vs. est. $1.26; Q4 sales $2.37B vs. est. $2.43B; said expect to grow adjusted 2023 EPS by between 5 and 15%.

·     HAS -4%; announces organizational changes; reports prelim Q4 EPS $1.29-1.31 ex-items vs est. $1.52, and revs $1.68B vs est. $1.92B; cuts jobs; guides year below views as well.

·     INTC -7%; tumbles following weak Q4 results and provided a Q1 outlook well below consensus – guided Q1 revs to fall -22% q/q, $10.5B-$11.5B vs. est. $13.9B.

·     KLAC -5%; slides after cautious outlook overshadows Q2 beat; sees 3Q revs $2.2-2.5B vs est. $2.55B, adj gr mgn 60.5-62.5%, adj EPS $4.52-5.92 vs est. $5.89.

·     RL -2%; downgraded to Underperform at BMO Capital after its ~4 month ~50% rally noting shares are almost back to pandemic peaks despite lowered results.

·     SI -6%; announced it has suspended the payment of dividends on its 5.375% Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series A, in order to preserve capital.

·     SNBR -3%; after sees prelim FY22 EPS $1.60 below consensus of $1.71 and revs $2.04B vs. est. $2.11B while CFO David Callen to step down, Chris Krusmark named interim CFO.